International Trade Law News

Published by Jacobson Burton Kelley PLLC

The Bureau of Industry and Security (BIS) recently entered into two settlement agreements with companies for violating the Export Administration Regulations (EAR). BIS also issued an order temporarily denying the export privileges of a California company and its Chinese affiliates for engaging in conduct prohibited by the EAR. In all three cases BIS alleged the affected companies were aware of the restrictions imposed by the EAR but chose to proceed with the prohibited exports anyway.

In the first settlement, BIS imposed a $680,000 civil penalty on Ingersoll-Rand Co., Ltd. (I-R) for exporting controlled diaphragm pumps, classified under Export Control Classification Number (ECCN) 2B350, to India, Israel, China, Taiwan and Russia without obtaining the required export licenses. BIS alleged that I-R’s Ohio-based ARO Fluid Products division committed 80 violations of the EAR, including engaging in prohibited exports, acting with knowledge of a violation and misrepresenting facts through false statements on shipper’s export declarations (SED). BIS alleged that I-R acted with knowledge of the EAR requirements because BIS officials had twice visited the company and recommended that the company submit a commodity classification request to BIS. Despite being briefed by BIS on the application procedure, I-R failed to submit the classification request and continued to export its products without export licenses. The company also stated on the SEDs associated with the exports that the products qualified for export as NLR (no license required). These violations were voluntarily disclosed by I-R to BIS.

In the second settlement, BIS imposed a penalty of $35,000 on California-based Extreme Networks Inc. for exporting computer network switching hardware, classified under ECCN 5A991, to the Beijing University of Aeronautics and Astronautics (“BUAA”), an organization on the Entity List. BIS alleged that Extreme Networks exported the product even after it had already applied for and been denied a license to export comparable items to BUAA. BIS also charged Extreme Networks with making a false statement concerning the ultimate consignee when it advised its freight forwarder that the product was to be shipped to Hong Kongk when, in fact, the ultimate consignee was BUAA.

In addition, BIS imposed a temporary order denying the export privileges of Data Physics Corporation and its Beijing and Shanghai offices for engaging in conduct prohibited by the EAR. According to BIS, Data Physics sold and shipped items subject to the EAR without an export license to an end-user in China engaged in the design, development, production and use of cruise missile systems. BIS alleged that Data Physics attempted to conceal the identity of the end-user, HaiYang Electro Mechanical Technology Academy (the Academy), by using a false customer name “27th Locomotive Factory.” The company attempted to evade the licensing requirements by breaking down the items into smaller components and separate shipments in order to avoid raising suspicion. Installation reports seized from Data Physics show that after the items would arrive at the Academy, employees from the Chinese offices of Data Physics would reassemble and install the equipment. BIS found Data Physic's actions to be deliberate and covert since the company was aware of the restrictions imposed by the EAR. Interestingly, copies of section 744.3 of the EAR were found during a search of Data Physics with the applicable portions highlighted. In addition, numerous Data Physics employees had attended BIS training involving exports to China and end-use restrictions.